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The Shady Grove case got me thinking about uniformity (or lack thereof) in class action law across the circuits and reminded me that in the MTBE Products Liability Litigation, Judge Scheindlin (SDNY) held that the interpretation of the requirements of Rule 23 of the Fourth Circuit (the transferor court) not the Second Circuit (the transferee court), would apply to that Multi-District Litigation. She wrote:

The requirements of class certification are inherently enmeshed with considerations of the trial, and under Lexecon the authority of the transferee court in
multi-district proceedings ends once the pretrial proceedings are
completed. “It would be neither just nor efficient to apply the law of
this Circuit in considering class certification, and then force the
transferor court to try a class action that it might never have
certified.” FN42
Moreover, “[n]either party should be prejudiced in preparing for trial
because the case was removed and transferred to another district in a
different circuit.” FN43 “Thus, in considering a motion for class certification of state claims under Rule 23,
the law of the transferor circuit controls because that is the law that
will bind the trial court and class certification is an issue on which
the Supreme Court has directed courts to ensure that the requirements
of Rule 23 are satisfied for purposes of trial.”

This
article, part of a symposium honoring the 25th anniversary of Owen
Fiss’s Against Settlement, takes issue with the basic premise that
settlement indicates defeat of the weak by the powerful, the poor by
the rich, the injured by the wrongdoers. The argument is both empirical
and normative. On the empirical side, this article challenges the basic
claim advanced by Fiss and Marc Galanter that repeat players in the
courts of justice are more likely to prevail because they will marshal
and deploy greater resources. Over the past quarter century, the
emergence of the well-heeled plaintiffs’ firm together with referral
and other market organizing practices have allowed plaintiffs to fight
and defeat institutional defendants across all sorts of mass harm
cases. Normatively, this article challenges the assumption that the
driving organizational framework of the court system should be derived
from the structural injunction that characterized an episodic phase of
the civil rights movement. Instead, resolution of mass harms has been
and continues to be one of the great challenges of the judicial system,
a process for which settlement is a critical and likely inescapable
component.

I
start from the view that small-value consumer claims are a primary
reason that class actions exist, and that without class actions many -
if not most - of the wrongs perpetrated upon small-claims consumers
would not be capable of redress. It would then seem to follow that the
class action device should be readily available in small-claims
consumer cases. And yet, over the past decade, federal district courts
have repeatedly declined to certify class actions on grounds that are
specific to small-claims consumer cases. Foremost among those grounds
is the notion that the federal class action rule carries within it an
implicit requirement of “ascertainability.” More specifically, courts
have held that in order to certify a class, the identity of class
members must be sufficiently ascertainable to ensure the efficacy of a
subsequent distribution of damages. In practice, what this shadow
standard of ascertainability has come to mean is that no matter how
clear the evidence of wrongdoing, plaintiffs have no redress in the
typical consumer case involving small retail transactions. This article
examines the ascertainability doctrine as it is developing in the
courts, and shows that the traditional goals of class actions -
deterrence and compensation - cannot plausibly be said to animate this
new certification requirement. Indeed, the ascertainability requirement
readily sacrifices both deterrence and compensation in favor of an
alternative value, namely, ensuring that compensation does not flow to
uninjured parties. I end with a first-round effort to understand what
really may be animating the ascertainability doctrine, suggesting that
the explanation lies in a conception of class actions that is based on
a private law model - i.e., a conception that demands unity among the
injured parties, the prosecutors of civil actions, and the
beneficiaries of remedies. Future work will seek to tease out the
normative underpinnings of this private law model.

Scotusblog has a very nice recap of the Shady Grove oral argument, better than the real thing in my opinion. I was lucky to be teaching Erie last week in my civil procedure class and have been thinking a lot about this case.

Among other things, this case raises the question of whether a class action is a remedy, which would be "substantive" under Erie, or merely a method for dealing with large numbers of claims, which would be "procedural" under Erie. I think the class action is both things. It is a means to aggregate claims and permits large-scale remedial action that would otherwise be impossible because most people do not bring their small claims at all. The Court will have to choose between these competing interpretations.

The oral argument demonstrated to me that we do not have a good theory of what a class action is. If we buy entity theory (that the class action is an entity like a corporation) then to me the class looks more remedial. This would mean that in order to be consistent with Cohen v. Beneficial Loan, 337 U.S. 541 (1949) the Court would have to hold that the NY Rule trumps Rule 23. Why? In that case the Court reasoned that the state legislature wanted to limit costly derivative litigation and therefore the state rule regarding that type of litigation ought to govern regardless of Rule 23. (At that time Rule 23 governed derivative suits). Justice Ginsburg kept bringing up Cohen in the oral argument, so dealing with it is important. (Set aside for the moment what this interpretation means for the legitimacy of class actions under the Rules Enabling Act).

On the other hand, if the class action is simply a mechanism for aggregating similar individual cases, then the class looks more like a "housekeeping" rule. Under this theory, a class is nothing more than a collection of individual cases that plaintiffs are otherwise entitled to bring, and nothing about the class action changes that fact. Advocates of this version of the class action might be against cy pres distributions, for example, because the money doesn't go to individual class members which is the only place it belongs. If aggregation of individual claims is the theory of the class action, then the federal rule should govern because no change is wrought to the underlying substantive law by the aggregation - its just that all the small cases are adjudicated together. Nor does the class action create an inequity in the law because in state citizens can still bring their claims just as well. The availability of aggregation doesn't change that. In this view, Shady Grove is more like Hanna v. Plumer, 380 U.S. 460 (1965), where the Court upheld the federal rule on service of process.

In his recent book, Wholesale Justice, Martin Redish argues that the class action does distort the substantive causes of action brought by this mechanism and is therefore a violation of the Rules Enabling Act (which states that the federal rules cannot abridge enlarge or modify any substantive right). Redish is making an argument about democratic accountability, but his theory fits nicely with Ginsberg's apparent view of class actions from oral argument - that they are a remedy that alters the substantive law.

Proponents of class actions make similar arguments. Myriam Gilles has argued in an excellent article Exploding the Class Action Agency Costs Myth, that in a class action what matters is deterrence, not whether individuals actually get compensation. This theory is particularly resonant in statutory damages cases where the amount collected is small and uniform, perfectly suited to the class action mechanism. And the ability to bring statutory damages class actions are what is at stake in Shady Grove.

This brings me to what Justice Story, the author of Swift v. Tyson, would say about this. Story was the author of the first treatise of Equity in the U.S. and a big fan of distinguishing between law and equity. (The class action is a procedural mechanism with its roots in equity). He was also a staunch Federalist. His opinion in Swift requiring that federal judges apply a "general common law" in commercial cases (later expanded to all cases) was a move to consolidate power over the national economy in the federal government. We see echos of this in the Class Action Fairness Act (barely discussed at oral argument but I think quite relevant to the case), which brought class actions exceeding $5 million into federal court with some limited restrictions on local class actions. Erie recognized that the Swift rule did not bring the uniformity of law that it promised and overturned it. Its not clear to me that Erie is about uniformity at all. Ed Purcell in his wonderful book Brandeis and the Progressive Constitution, reads Erie as Brandeis' reaction against the centralization wrought by the Federal Rules, which were adopted the same year. Will Shady Grove, if it comes out in favor of the NY rule, be read as a reaction against the attempt at centralization wrought by CAFA? Or as a corporatist move by the Court? Or simply part of the larger struggle of this Court against litigation in general? (For an excellent discussion of this trend, see Andrew Siegel, The Court Against the Courts: Hostility to Litigation as a Theme in the Rehnquist Court's Jurisprudence, Siegel could write a great update to this piece based on Twombly, Iqbal and probably Shady Grove given how oral argument went).

Finally, would this case come out differently if the state law at stake favored class actions? There seemed to be an argument floating around that a rule favoring class actions would not be applied under Erie because the methods of certifying class actions is governed by Rule 23 and this would be a direct conflict, whereas the case at hand presents an indirect conflict because the state has banned class actions altogether for certain categories of cases. I don't really buy this one way ratchet idea - it seems to me that if you say that the state's interest in not having class actions is paramount, so too should the state's interest in enabling litigation be paramount.